Literature Review

[SawyerMcFarland]

We found the articles each of us will read and write a lit review for before next class. Me and Arya have two articles and Logan has one, he won the rock-paper-scissors.

[aryar5]

I have linked my notes and takeaways from the lit review here

[kbuzard]

@ecn310/international-trade-policy We'll talk about the reasons for this more on Wednesday, but it's going to work better to have your work product (that you currently have on the Wiki) in an .md file, discussion or issue. Then you can just link to each output on the Wiki along with a short update like what you have here. The basic issue is that there aren't tools on the wiki to interact and give feedback, so it's only really good as a straightforward record of what's been done.

We can also brainstorm other documentation structures in class on Wednesday if you think there's something else that'll work better.

@aryar5 These look like great summaries, but the they don't sound much like economics papers. I can't tell because you didn't include the citations. It's okay to include a little bit of literature from outside economics in your final literature review. I'm a little worried that they might not be as helpful as economic papers in identifying the economic theories that can guide the development of your hypotheses.

• Remember that each entry in what you submit tomorrow should look something like the ones in this example

[kbuzard]

@ecn310/international-trade-policy I can't comment on your lit review because it's in the Wiki (see slide 6 from yesterday's slides). Will you please move it to an .md file (preferred) or an issue or discussion and let me know so I can give you feedback?

[aryar5]

Arya's Articles

[Article 1] The E.U., the U.S., and Trade Policy: Competitive Interdependence in the Management of Globalization (https://www.tandfonline.com/doi/full/10.1080/13501761003662016)

Hypothesis: The E.U. and the United States, while engaged in competitive interactions within the global economic landscape, are also interdependently reliant on each other's markets, technologies, and investments, creating a dynamic and paradoxical trade relationship.

Sbragia's article delves into the intricate dynamics of trade relations between the European Union (E.U.) and the United States, emphasizing the concept of "competitive interdependence." She argues that while the EU and the U.S. are often competitors in the global economic landscape, they are also mutually reliant on each other's markets, technologies, and investments.

Sbragia, Alberta. "The E.U., the U.S., and trade policy: competitive interdependence in the management of globalization." Journal of European Public Policy 17 (2010): 368 - 382.

[Article 2] E.U. Trade Policy amid the China-US Clash (https://www.jstor.org/stable/pdf/resrep28515.pdf) "GonzáLez, Anabel, and Nicolas VéRon. Caught in the Cross-Fire?" Jstor, 27 Sept. 2019, Www.Jstor.Org/Stable/Resrep28515.".

Hypothesis: In the context of escalating trade tensions between the United States and China, the European Union (E.U.) has strategically positioned itself as a normative power committed to preserving a rules-based international trading system. The E.U.'s trade policy seeks to balance its economic interests, normative values, and strategic geopolitical considerations while effectively engaging with the United States and China.

This inferred hypothesis reflects the paper's central theme, which emphasizes the E.U.'s commitment to a rules-based order, its strategic approach to managing trade relationships, and the complexities it faces in navigating the U.S.-China trade conflict. The hypothesis suggests that the E.U.'s trade policy is designed to strike a delicate balance between various factors, aiming to strengthen its position in global trade governance.

González and Véron's paper provides a thorough analysis of the E.U.'s trade policy in the face of the U.S.-China trade conflict. It offers valuable insights into the E.U.'s strategic approach, its commitment to a rules-based order, and the challenges it confronts. The policy recommendations presented contribute to discussions on strengthening the E.U.'s role in global trade governance.

Linked here are the key takeaways and the notes from Arya's Lit Review

Sawyer's Articles

Article 3 International Trade and U.S. Relations with China

Fordham, Benjamin O., and Katja B. Kleinberg. "International Trade and U.S. Relations with China." Foreign Policy Analysis 7, no. 3 (2011): 217–36. https://doi.org/10.1111/j.1743-8594.2011.00135.x.

International Trade and U.S. Relations with China by Benjamin O. Fordham and Katja B. Kleinberg in 2011 is a journal article examining the U.S. relationship with China and what that means as a trade partner. Through this article, they navigate whether the U.S. citizens view China as a friendly rival or foe. If their exponentially growing economy will surpass our behenic of economies, what does that mean for our foreign policy with them?

Fordham and Kleinberg propose the question, "Should we really expect trade to diminish potential tensions between the United States and China?" which they answer by focusing on the impact of trade on individual attitudes and a liberal argument.

The liberal argument: "If the opportunity cost of commerce interrupted by conflict matters, its effects should be apparent in the attitudes of those most directly affected by it." With individual attitudes in mind, the authors look at previous data samples that show a trend of support for free trade; they only use insight from these works to examine if the factors that led individuals to support free trade also could push individuals' attitudes toward policies that would "influence trade relationships more indirectly."?

Hypothesis: Americans with more money and education will most likely not perceive China as a threat as they will not be affected economically yet. Meanwhile, Americans who are more labor-focused for employment and are less educated will be more concerned with China as a threat.

Theory: Stapler-Samuelson theorem says Americans with more education and economic means should see their income increase due to trade; meanwhile, Americans with lesser capital should see a decline.

The main question here in terms of the Stopper-Samuelson theorem is if the "economic stakes it identifies also help explain threat perception"?

Although about China and U.S. trade, this is still valuable information on how people think of international trade, especially with a trading partner as important as China to the U.S.

[Article 2] Trade-Policy Dynamics: Evidence from 60 Years of U.S.-China Trade* by George Alessandria, Shafaat Yar Khan, Armen Khederlarian, Kim J. Ruhl, and Joseph B. Steinberg. AKKRS_50yearDraft[96].pdf

China's economic leap was caused by the change in monetary policy, such as fiscal policy, which allowed U.S. tariffs to have a lesser impact on the economy. This study shows the dynamics in trade policy over the last 60 years between the U.S. and China. This study studies the past, present, and future of trade policy between China and the U.S.

The hypothesis is that the effects from past and future police are tangled and that they have created a mash to disentangle the product, applying it to the U.S. and China exports during the time frame they are studying, 1971-2008. This study offers a different idea of how the changes in trade policy between the past and future grew U.S. trade with China.

The study finds that the extended-run response to trade tariffs is much higher than the short-run, four times larger.

Logan's Articles

Article 1_Devaluation and the J-Curve: Some Evidence from LDCS

Author: Mohsen Bahmani-Oskooee, Source: The Review of Economics and Statistics, Aug. 1985, Vol. 67, No. 3 (Aug. 1985), pp. 500-504

Devaluation and the J-Curve explores how trade plays a role in the severe depreciation of national currency to improve trade balance. However, devaluing currency doesn't always balance trade deficits; trade deficits sometimes worsen with a devalued currency. This is known as the J-Curve phenomenon. Furthermore, this doesn't only affect less developed countries. 1971, the U.S. dollar was devalued, and in 1972, there was a large trade deficit.

Author Bahamu-Oskooee hypothesizes that devaluing the currency, accounting for all variables including exchange rate, elasticities, price level, income, and domestic output, the devaluing currency won't help alleviate the trade deficit but can help with other debts but can also provide adverse short-term effects.

*Hypothesis: Countries with a higher devaluation rate will have much worse trade balances. Additionally, an increase in income for a country with a poor trade balance could be a detriment, given imports will rise.

*Devaluation may not cause the trade deficit to fail; however, there is another question about how the short-term flows of goods respond to a change in the exchange rate. Finally, the J-curve may have a boomerang effect, eventually allowing the market to return to positive strength.

[aryar5]

@kbuzard Thank you Professor, here is our Lit Review. Hope it suffices!

[kbuzard]

@aryar5 Comments below on your two articles:

Sbragia's article delves into the intricate dynamics of trade relations between the European Union (E.U.) and the United States, emphasizing the concept of "competitive interdependence." She argues that while the EU and the U.S. are often competitors in the global economic landscape, they are also mutually reliant on each other's markets, technologies, and investments.

I don't see anything that looks like a clearly-stated economic theory here. Can you turn something in the article into a clear economic theory using the ideas and examples in the Remler & VanRyzin Ch. 2 reading?

Similarly for the second paper, these are political theories about how trade policies are chosen. Is there anything that would helpful to your project, which is about how changes in trade policy affected what goods are traded, what volumes, when, at what price?

[kbuzard]

@SawyerMcFarland : comments on your articles below

"Should we really expect trade to diminish potential tensions between the United States and China?"

This is about the effects of trade on political outcomes, but I think your research question is about how trade policy affects trade outcomes (more details on my response to Arya above).

• The Stolper-Samuelson Theorem is useful for predicting who will be hurt and helped by trade, but I don't think this is going to help you answer your research question.
• This points to a big-picture problem: you have no clearly stated the research question, so it's hard to evaluate whether these theories might help answer it.

The hypothesis is that the effects from past and future police are tangled and that they have created a mash to disentangle the product, applying it to the U.S. and China exports during the time frame they are studying, 1971-2008. This study offers a different idea of how the changes in trade policy between the past and future grew U.S. trade with China.

The study finds that the extended-run response to trade tariffs is much higher than the short-run, four times larger.

This is more promising in terms of relevant theory. Can you pull anything out of the area where you got the content for the first paragraph that will say clearly how the changes in trade policy changed U.S. trade, and why?

The second paragraph could also be developed into a theoretical statement. That is, answering the question why/how does trade policy have smaller effects soon after the policy change and larger effects later on?

[kbuzard]

@lefaulk There is some useful economic theory in the article you've cited, but it's about the effects of changes in currency valuations on a very specific outcome: trade deficit. I think your research question will be about the effects of changes in trade policies on trade shares. Is there anything you can find in this article that will help answer those types of questions?

[kbuzard]

@ecn310/international-trade-policy It's hard to tell the potential of what you have here without a clearly-defined research question. Given what I know of the project conceptualization, I'm worried that you may not have enough here to formulate any hypotheses that are grounded in economic theories. Please

1. Formulate a clear research question related to the material that Professor Khan has provided;
2. look at my comments on the individual papers;
3. look at the big picture and see if you need to find some additional sources that have relevant theories (If you can't find at least several in these papers you've already looked at).

[aryar5]

@aryar5 Comments below on your two articles: I don't see anything that looks like a clearly-stated economic theory here. Can you turn something in the article into a clear economic theory using the ideas and examples in the Remler & VanRyzin Ch. 2 reading?

Similarly for the second paper, these are political theories about how trade policies are chosen. Is there anything that would helpful to your project, which is about how changes in trade policy affected what goods are traded, what volumes, when, at what price?

@kbuzard here is my revised literature review with your feedback incorporated.

Economic Theory for Article 1: Title: Sbragia, Alberta. "The E.U., the U.S., and trade policy: competitive interdependence in the management of globalization." Journal of European Public Policy 17 (2010): 368 - 382. (https://www.tandfonline.com/doi/full/10.1080/13501761003662016)

Hypothesis: In the realm of international trade, the Competitive Interdependence Theory posits that countries engage in competitive interactions that create interdependencies, leading to mutual benefits. This theory suggests that competitive relationships between countries, such as the E.U. and the U.S., can be characterized by mutual reliance on each other's markets, technologies, and investments, thus fostering cooperation amidst competition.

Explanation: Competitive Interdependence Dynamics: Competitive interdependence signifies that even when countries are rivals in some sectors of the global economy, they rely on each other's strengths in different economic domains, leading to interlocking trade relationships.

Trade Policy Choices: This theory relates to Remler & VanRyzin Chapter 2 by emphasizing that trade policy choices by nations can influence the creation of competitive interdependence, as trade policies may promote or hinder cooperation among trading partners.

Application to Our Project: Competitive Interdependence Theory can be applied to analyze how changes in trade policy between the E.U. and the U.S. influenced the composition of traded goods, trade volumes, pricing dynamics, and the timing of trade transactions. The theory suggests that policy changes that promote cooperation can lead to mutually beneficial outcomes.

Economic Theory for Article 2: Title: E.U. Trade Policy amid the China-US Clash GonzáLez, Anabel, and Nicolas VéRon. Caught in the Cross-Fire? Jstor, 27 Sept. 2019, Www.Jstor.Org/Stable/Resrep28515.

Hypothesis: This paper covers Normative Power and Strategic Trade Policy Theory which asserts that the European Union (E.U.) positions itself as a normative power in global trade, strategically designing trade policies to balance economic interests, normative values, and geopolitical considerations. The E.U.'s trade policies aim to uphold a rules-based international trading system while effectively engaging with major players like the U.S. and China.

Explanation: Normative Power and Trade Policy: This theory highlights the E.U.'s commitment to normative values, such as a rules-based order, fair trade, and multilateralism, which inform its trade policy choices.

Strategic Trade Policy: The theory acknowledges the strategic nature of the E.U.'s trade policy choices, emphasizing that they are designed to achieve both economic and normative objectives.

Application to Project: Normative Power and Strategic Trade Policy Theory can be used to examine how the E.U.'s normative-driven trade policies have influenced the traded goods, trade volumes, pricing mechanisms, and trade timing. By adhering to a rules-based system, the E.U. may influence the types of goods traded and the conditions under which trade occurs, impacting economic outcomes. I believe these economic theories provide a comprehensive framework for analyzing the economic aspects of the E.U. 's trade relationships and policies, linking them to the effects of trade policy changes on trade patterns, goods traded, volumes, pricing, and timing.

Potential Hypothesis: In international trade, the European Union (E.U.) competes with major global players like the U.S. and China, resulting in interdependence. This theory suggests that these competitive relationships create mutual benefits. The E.U. also acts as a normative power in global trade, strategically designing trade policies to balance economic interests, values, and geopolitics. These policies aim to maintain a rules-based international trading system while engaging with the U.S. and China. This framework implies that E.U. Trade Policy choices influence traded goods, volumes, prices, and trade timing. Policies promoting cooperation and aligning with values can lead to mutually beneficial economic outcomes.

[aryar5]

Sawyer's Literature Reviews Article 3 International Trade and U.S. Relations with China Fordham, Benjamin O., and Katja B. Kleinberg. “International Trade and US Relations with China.” Foreign Policy Analysis 7, no. 3 (2011): 217–36. http://www.jstor.org/stable/24909795.

Economic Theory: Trade Policy and Trade Outcomes

Hypothesis: Changes in trade policy have significant implications for trade outcomes, impacting factors such as trade volume, trade balance, and the composition of traded goods.

Overview: Fordham and Kleinberg propose the question, "Should we really expect trade to diminish potential tensions between the United States and China?" which they answer by focusing on the impact of trade on individual attitudes and a liberal argument. In the research paper by Fordham and Kleinberg, "International Trade and US Relations with China," the authors explore the complex relationship between international trade, particularly with China, and its implications for U.S. foreign policy and international relations.

Trade Volume and Bilateral Relations: Fordham and Kleinberg's paper discusses how changes in U.S. trade policy towards China, such as the imposition of tariffs or the negotiation of trade agreements, affect the volume of trade between the two nations. The theory predicts that trade policy changes could lead to fluctuations in trade volume, impacting diplomatic relations.

Trade Balance and Economic Interdependence: The research paper also examines the trade balance between the U.S. and China, exploring whether trade policy decisions result in trade surpluses or deficits. The theory suggests that shifts in trade policy can influence the trade balance, which, in turn, may have implications for economic interdependence and geopolitical considerations.

Comparative Advantage and Global Supply Chains: It touches upon how trade policy decisions impact the comparative advantage of each country in the international trade landscape. This relates to the theory's emphasis on how trade policies can affect a nation's ability to specialise and participate in global supply chains. Changes in trade policy have multifaceted impacts that extend beyond the economic sphere and influence political outcomes.

Trade Policy and Policy Feedback Loops: Building on Remler & VanRyzin's ideas about policy feedback, the theory could suggest that changes in trade policies can create feedback loops that affect subsequent political decisions. For example, a contentious trade decision might lead to political polarisation or influence the prioritisation of other policy issues.

*[Article 2] Trade-Policy Dynamics: Evidence from 60 Years of U.S.-China Trade by George Alessandria, Shafaat Yar Khan, Armen Khederlarian, Kim J. Ruhl, and Joseph B. Steinberg. AKKRS_50yearDraft[96].pdf**

Economic Theory: Changes in trade policy and their effects on trade outcomes are influenced by a complex interplay between past and future policy decisions

We derived 2 big ideas from this article

Claim 1: The authors of the article argue that China's economic growth can be attributed to changes in monetary and fiscal policies, which reduced the impact of U.S. tariffs. This shift in trade policy significantly affected the U.S.-China trade relationship. It is highlighted that alterations in fiscal and monetary policies played a key role.

Key Changes in U.S.-China Trade: -Before 1971, imports from China faced extremely high tariffs. -In 1971, the U.S. lifted its embargo on Chinese goods. -In 1981, China gained Normal Trade Relations (NTR) status, leading to lower tariffs. -In 2001, China's NTR status was made permanent upon its entry into the World Trade Organization (WTO).

Key Points on Trade Policy Changes and U.S.-China Trade: Policy Shifts: Changes in monetary and fiscal policies, including fiscal adjustments, contributed to China's economic growth by mitigating the impact of U.S. tariffs. This suggests that modifying fiscal and monetary policies can reduce the negative effects of trade tariffs and boost trade.

Historical Reforms: The lifting of the U.S. embargo on Chinese goods in 1971 and the granting of NTR status in 1981 were pivotal reforms that significantly influenced U.S.-China trade.

Long-Term vs. Short-Term Effects: The paper shows that trade policy changes have more significant long-term effects compared to short-term effects, with long-term responses to trade tariffs being four times larger. This indicates that past and future trade policies are interconnected, shaping trade outcomes in a complex manner.

Claim 2: Trade policy changes exhibit smaller immediate effects shortly after implementation but have more substantial impacts over time due to the interplay between past and future policy decisions.

Delayed Effects: The paper reveals that the consequences of trade policy changes take time to fully manifest due to the intricate relationship between past and future policy decisions.

Long-Term Effects: The paper emphasized the significant role of earlier trade-policy expectations, particularly during the 1980s and 1990s, in shaping Chinese exports to the United States around 2001. This underscores that long-term effects of trade policy changes can profoundly impact trade patterns.

Usefulness to Our Group: The research helps us comprehend how trade policy changes influenced U.S.-China trade over time. It underscores the importance of monetary, fiscal, and trade policy shifts. The authors suggest that their analysis could extend to consider contemporary events such as Brexit, the U.S.-China trade war, safeguards, and domestic content requirements. The study highlights that past trade policies can continue to affect trade long after their implementation, and long-term responses to trade tariffs are significantly larger than short-term ones. Ignoring these factors can lead to an overvaluation of the effect of trade access on tariff risk.

[SawyerMcFarland]

@aryar5 Thank you for helping me work through the lit review today and posting for me as I was in class by then. @lefaulk you need to post your revised lit review here so the professor can give you comments. Also Arya and I were talking today about coming up with a hypothesis for our research project @lefaulk could you meet us tomorrow at 1:15 to discuss it?

[SawyerMcFarland]

Logans Literature Review

Article 1_Devaluation and the J-Curve: Some Evidence from LDCS

Author: Mohsen Bahmani-Oskooee, Source: The Review of Economics and Statistics, Aug. 1985, Vol. 67, No. 3 (Aug. 1985), pp. 500-504

The Review of Economics and Statistics is a research publication who'd purpose is to explore modern economic theory and reasoning. In Moshen Bahamani-Oskooee's Devaluation and the J-Curve, Bahamani-Oskooee explores how trade plays a role in the severe devaluation of national currency as a means to improve trade balance, and also asks the question of whether nations should expect the devaluation of their currency to have a reasonable affect on its trade deficit. However, devaluing currency doesn't always balance trade deficits, and sometimes, trade deficits worsen with a devalued currency. This is known as the J-Curve phenomenon. Furthermore, this doesn't only affect less developed countries. In 1971, the U.S. dollar was devalued and in 1972 there was a large trade deficit.

Author Bahamu-Oskooee hypothesizes that devaluing the currency, accounting for all variables including exchange rate, elasticities, price level, income, and domestic output, the devaluing currency won't help alleviate the trade deficit but can help with other debts, but can also provide negative short-term effects.

*Hypothesis: Countries with a higher rate of devaluation will have much worse trade balances. Additionally, an increase in income for a country with a poor trade balance could be a detriment, given imports will rise.

*Devaluation may not cause the trade deficit to fail, however, there is another question pertaining to how the short-term flows of goods respond to a change in the exchange rate. Finally, the J-curve may just have a boomerang effect, where it eventually allows the market to return to positive strength without the need to spend more money.

This information is crucial when we talk about modern trade policy with larger nations with high debt, like the United States because it refutes the notion that there is an advantage to spending more to stabilize trade imbalances and forces one to think about other potential reasons.

[kbuzard]

@aryar5 From the first paper, the part that sounds like economics is

how changes in trade policy between the E.U. and the U.S. influenced the composition of traded goods, trade volumes, pricing dynamics, and the timing of trade transactions

The second paper is more of the same.

An economic theory would say how trade policy influences at least one of these things. For instance, if the E.U. reduces its tariff on imports, the price of imports will go down. We would then predict through simple demand theory that we'd move along the demand curve; that is, at a lower price, there's more demand since demand in downward sloping in price.

This may be useful to help you develop the hypothesis for your paper, but Professor Khan (or most economists) would think it was very strange to have political science papers in the literature review.

There's a lot of theory in these two papers, but almost all of it is about politics, not directly about economics.

[kbuzard]

@SawyerMcFarland

Comparative Advantage and Global Supply Chains: It touches upon how trade policy decisions impact the comparative advantage of each country in the international trade landscape. This relates to the theory's emphasis on how trade policies can affect a nation's ability to specialise and participate in global supply chains.

Comparative advantage IS an economic theory. Trade policy can obscure comparative advantage; reducing barriers can allow trade based on comparative advantage to emerge and increasing barriers can allow countries to export things that are not their comparative advantage. But that is probably deeper than you need to go for this project.

Changes in trade policy can affect how firms structure their supply chains. For instance, sometimes a firm will locate production in a country that has high tariffs in order to avoid paying the tariffs.

Changes in trade policy have multifaceted impacts that extend beyond the economic sphere and influence political outcomes.

This is about politics, not economics

Trade Policy and Policy Feedback Loops: Building on Remler & VanRyzin's ideas about policy feedback, the theory could suggest that changes in trade policies can create feedback loops that affect subsequent political decisions. For example, a contentious trade decision might lead to political polarisation or influence the prioritisation of other policy issues.

This is interesting, but again is not really economics.

The study highlights that past trade policies can continue to affect trade long after their implementation, and long-term responses to trade tariffs are significantly larger than short-term ones. Ignoring these factors can lead to an overvaluation of the effect of trade access on tariff risk.

This is all economics, but as I was pushing you today in class, is missing the "why?"

the interplay between past and future policy decisions

This is just not specific enough. Which policies? How do they interact?

[kbuzard]

@lefaulk

Again, this is an economics paper, and there's lots of interesting information in here. But your project isn't studying currency devaluations, so I don't see how you could pull theory out of there that's going to help with your project.

@ecn310/international-trade-policy Professor Khan gave you two papers to start looking at; this is where you should start, and then do forward citation searches from those paper (and possibly look at the papers that they cite).

• Your entries do not answer the question of how you arrived at these papers (which was a requirement of the assignment).
• I also still don't see the research question clearly stated

What you added yesterday makes a few small steps in the right direction, but I'm still concerned that you may not have enough here to formulate any hypotheses directly related to the project that are grounded in economic theories. Please (again)

1. Formulate a clear research question related to the material that Professor Khan has provided;
2. look at the big picture and see if you need to find some additional sources that have relevant theories (If you can't find at least several in these papers you've already looked at). In particular, review the two papers that Professor Khan shared.
3. Include for each resource how you found it.

[aryar5]

Potential RQ From All Resources Provided: How does the concept of comparative advantage apply to the European Union's (E.U.) role in international trade, where it competes with major players like the U.S. and China, fostering economic interdependence? Specifically, how do E.U. policies, which balance economic interests, values, and geopolitics, influence traded goods, volumes, prices, and trade timing, and can such policies lead to mutually beneficial economic outcomes?

Hypothesis: Integrating the idea of comparative advantage into the European Union's (E.U.) international trade approach, which involves competition with the United States and China while promoting economic interdependence, implies that E.U. policies that balance economic interests, values, and geopolitics can enhance trade composition, increase trade volumes, affect prices, and shape trade timing

Arya's Literature Reviews

Paper 1 - Sbragia (2010): Title: "The E.U., the U.S., and trade policy: competitive interdependence in the management of globalization." Source: Journal of European Public Policy, 17(2010), 368-382. Accessed Through: Academic database "Taylor & Francis Online."

Hypothesis: "How do competitive interdependence dynamics and economic welfare theories, grounded in economic principles, explain the effects of trade policy choices on the European Union's (E.U.) economic outcomes in its trade relations with the United States and China?"

Relevant Economic Theories from Paper 1: Competitive Interdependence Theory: Competitive interdependence signifies that even when countries are rivals in some sectors of the global economy, they rely on each other's strengths in different economic domains, leading to interlocking trade relationships. As Sbragia (2010) discusses, this theory is rooted in economic principles and helps explain how the E.U. competes with the U.S. in global trade while fostering cooperation. Connection to Remler & Van Ryzin Chapter 2: Competitive interdependence theory aligns with the economic principles discussed in Remler & Van Ryzin Chapter 2 by emphasizing that trade policy choices influence the creation of competitive interdependence. Trade policies, when analyzed from an economic perspective, can promote or hinder cooperation among trading partners, a concept explored further in Chapter 2. Application to Project: Competitive Interdependence Theory can be applied to analyze how changes in trade policy between the E.U. and the U.S. influenced the composition of traded goods, trade volumes, pricing dynamics, and the timing of trade transactions. The theory suggests that policy changes that promote cooperation can lead to mutually beneficial outcomes.

Source: Sbragia, A. (2010). "The E.U., the U.S., and trade policy: competitive interdependence in the management of globalization." Journal of European Public Policy, 17(2010), 368-382. [https://www.tandfonline.com/doi/full/10.1080/13501761003662016]

Paper 2 - Demertzis and Fredriksson (2018):

Title: "The EU Response to US Trade Tariffs." Source: Intereconomics, Vol. 53, Iss. 5, pp. 260-268. Accessed Through: Academic database "Springer."

Hypothesis: The imposition of trade tariffs by the United States on EU goods will lead to adverse economic consequences for both the EU and the US, ultimately resulting in a net loss in welfare for both economies

Relevant Economic Theories from Resource 2:

Theory of Comparative Advantage: This classic economic theory, as outlined by Demertzis and Fredriksson (2018), suggests that countries benefit from specializing in the production of goods and services in which they have a comparative advantage. It helps understand the economic implications of U.S. tariffs on the E.U.'s trade. Trade Multiplier Effect: Demertzis and Fredriksson (2018) explain how trade tariffs can trigger a multiplier effect in the economy, causing a reduction in overall economic activity beyond the initial impact. This effect explains the broader economic consequences of U.S. tariffs on the E.U. Economic Welfare Analysis: In their article, Demertzis and Fredriksson (2018) conduct economic welfare analysis. It assesses the overall well-being of the E.U. and U.S. by considering consumer and producer surplus. Connection to Remler & Van Ryzin Chapter 2: Economic welfare analysis directly relates to the economic principles discussed in Remler & Van Ryzin Chapter 2. Chapter 2 emphasizes the importance of considering economic welfare, which is a core economic theory, when making trade policy decisions.

Explanation: The hypothesis posits that when the US imposes tariffs on EU goods, it disrupts the normal flow of international trade. This disruption can have the following effects: Price Increases: Tariffs raise the prices of imported goods, leading to higher consumer prices in the US. This reduces consumer surplus as consumers have to pay more for the same goods. Reduced Exports: The EU, facing higher tariffs in the US market, may experience reduced exports. This can lead to a decrease in production and potential job losses in export-oriented industries. Retaliatory Tariffs: In response to US tariffs, the EU may impose retaliatory tariffs on American goods. This can harm US exporters and reduce their access to EU markets. Supply Chain Disruptions: Many industries rely on global supply chains. Tariffs can disrupt these supply chains, leading to inefficiencies and potentially higher production costs.

Source: Demertzis, M., & Fredriksson, G. (2018). "The EU Response to US Trade Tariffs." Intereconomics, Vol. 53, Iss. 5, pp. 260-268. DOI: 10.1007/s10272-018-0763-2.

@kbuzard I changed my second article for the Literature Review so that I could gather a more economic theory heavy review linked here. Incorporated all the resources Professor Khan provided and the literature Logan, Sawyer and I used and formed a research question and hypothesis which we could potentially use.

[kbuzard]

@aryar5 This new article looks like it has some really promising economics in it. Great move!

@ecn310/international-trade-policy I appreciate the research question that you have worked to formulate. At the same time, it's not very well aligned with Professor Khan's idea for the project, which was something like the following:

What are the impacts of US trade policy changes on trade with the European Union?

He thought it would be interesting to look at the policy changes in the U.S. versus non-E.U. countries -- for instance, free trade agreements like NAFTA and the one with South Korea as well as the trade war with China -- and see how those affect EU trade (imports and exports) with the U.S.

You can do more than what Professor Khan is proposing, with two caveats:

• The data he's suggested isn't going to allow for straightforward analyses of comparative advantage and welfare, and it definitely doesn't have anything to say about geopolitics and values. So you'd have to learn more complicated theories and find additional data to do this.
  • FYI, modern welfare analyses are very complicated and involve sophisticated methods that are well beyond the scope any undergraduate economics course.
• I'm concerned that you're going to be squeezed for time as it is. I think downloading these huge datasets is going to take a while, and then figuring out how to analyze so much data is going to be challenging enough without pushing further.

[SawyerMcFarland]

[Article 1] The US-China Trade War and Global Reallocations

Fajgelbaum, Pablo, et al. “The US-China trade war and global reallocations.” NATIONAL BUREAU OF ECONOMIC RESEARCH, 2021, https://www.nber.org/system/files/working_papers/w29562/w29562.pdf

This article was sent to our group by Professor Khan.

Why is this relevant to our research question, “What are the impacts of US trade policy changes on trade with the European Union?” (Professor Khan)?

• This study looks at the impacts of trade policy between the US and China and relocation of trade exports from other countries due to the restrictions between China and US. Although it does not specifically look at the EU it is looking at our research question in a broader light in terms of bystander countries throughout the world.

Hypothesis: “Countries that operate along downward-sloping supplies whose exports substitute (complement) US and China are among the larger (smaller) beneficiaries of the trade war.”(2)

Theory: The US-China trade war decreased globalization between the countries due to high tariffs increasing trade barriers, however heightened, “bystander’ countries by granting them potential to increase their exportation to the US economy due to Chinas exports being restricted to the US.

Question: “Did other countries take over the US and Chinese markets? Did they reallocate exports away from the rest of the world?” (1)

In this research study, they look at how other countries benefited from the decrease in trade between China and the US and if this caused further demand for Chinese products.

• “Our first proposition derives, from a first-order approximation around an arbitrary equilibrium, a formula for the reduced-form elasticity of a bystander’s product-level exports (to the US, China, and the rest of the world) to US and Chinese tariffs.”(3)
• “Our second proposition shows that, properly controlling for these indirect effects, the estimated tariff elasticities of exports jointly identify: I) whether a country’s exports substitute or complement the US or China; and ii) whether it operates along downward- or upward-sloping supply curves.”(1)

[Article 2] Quantifying Disruptive Trade Policies

Balistreri, Edward J.; Böhringer, Christoph; Rutherford, Thomas F. (2018) : Quantifying Disruptive Trade Policies, CESifo Working Paper, No. 7382, Center for Economic Studies and ifo Institute (CESifo), Munich.https://www.econstor.eu/bitstream/10419/191407/1/cesifo1_wp7382.pdf

I found the above article while going through the sources of the second article professor Khan sent out group. https://www.nber.org/system/files/working_papers/w29315/w29315.pdf

Why is this relevant to our research question, “What are the impacts of US trade policy changes on trade with the European Union?” (Professor Khan)?

• This paper is focused on the US and China trade war, however, focuses on how other countries respond to the economic sanctions in place between the two countries, focusing primarily on European countries economic response.

In this paper the authors show the “economic impacts of tariffs implemented by the United States in 2018 and the subsequent retaliations by partner countries.”(abstract), better the economic effects other countries experience. The study uses three structural assumptions on international trade; traditional competition model, and two monopolistic competition models.

Hypothesis: Tariffs are a burden to both US and China respective economies, however, economically benefit other countries(Europe) with more trade diversion due to restrictive trade between the two superpowers.

Theory: “beyond the US and China the distortions from additional trade barriers are small relative to aggregate trade. “(2) Therefore can enter or increase trade easier with the US and China when they restrict one another.

This paper does not directly ask a question and find an answer instead they believe the trade war between China and US warrants an “empirically grounded assessment” on economic consequences and so create this study to find the consequences that are and could become due to this trade war on other countries.

@kbuzard here are my two new economic articles and literature reviews.

[kbuzard]

@SawyerMcFarland This looks a lot better!

On the second one, can you flesh out the theory a little more?

beyond the US and China the distortions from additional trade barriers are small relative to aggregate trade.

A theory would say WHY the distortions are small relative to aggregate trade

I think the second part can also be fleshed out so you have an actual theory

Therefore can enter or increase trade easier with the US and China when they restrict one another.

What makes it easier to trade with the US when it's in a trade war with China? Less competition from Chinese products? Something else?

[SawyerMcFarland]

[Article 2] Quantifying Disruptive Trade Policies

Balistreri, Edward J.; Böhringer, Christoph; Rutherford, Thomas F. (2018) : Quantifying Disruptive Trade Policies, CESifo Working Paper, No. 7382, Center for Economic Studies and ifo Institute (CESifo), Munich.https://www.econstor.eu/bitstream/10419/191407/1/cesifo1_wp7382.pdf

I found the above article while going through the sources of the second article professor Khan sent out group. https://www.nber.org/system/files/working_papers/w29315/w29315.pdf

Why is this relevant to our research question, “What are the impacts of US trade policy changes on trade with the European Union?” (Professor Khan)?

This paper is focused on the US and China trade war, however, focuses on how other countries respond to the economic sanctions in place between the two countries --focusing primarily on European countries economic response.

In this paper the authors show the “economic impacts of tariffs implemented by the United States in 2018 and the subsequent retaliations by partner countries.”(abstract), better the economic effects other countries experience. The study uses three structural assumptions on international trade; traditional competition model, and two monopolistic competition models.

Hypothesis:

Tariffs are a burden to both US and China respective economies, however, economically benefit other countries(Europe) with more trade diversion due to restrictive trade between the two superpowers.

Theory:

Tariffs between US and China create economic benefits for other regions through trade diversion due to increase in price on exports from China and the US between one another, making products from smaller exporters (other countries) comparably less expensive since they have lower tariffs and fewer additional trade barriers on their exports.

This paper does not directly ask a question and find an answer instead they believe the trade war between China and US warrants an “empirically grounded assessment” on economic consequences and so create this study to find the consequences that are and could become due to this trade war on other countries.

For smaller countries it becomes easier to trade between China and US because there cost of exportations is lower than Chinese and American products between one another due to the tariffs imposed on each other. The tariff’s further lower competition of trade, allowing countries to export certain products to the US or China that US or China would have originally got form each other. Allowing the smaller countries to even raise their prices on their products as long as they maintain below the price that China and US have to pay for exportation from one another with the tariffs in place.

NOTE FOR PROFESSOR @kbuzard

I revised the second article as you instructed flushing out the theory further under the Theory section, and answered your follow up questions in the last paragraph above this note.

[kbuzard]

I revised the second article as you instructed flushing out the theory further under the Theory section, and answered your follow up questions in the last paragraph above this note.

It looks great, @SawyerMcFarland !